More record gas prices on the EU market. On Monday, the price exceeded USD 650. There is a shortage of gas, and the storage facilities in many countries are not ready for winter.
On Monday, gas prices on London’s ICE exchange in futures contracts for delivery in October, linked to the listings of Europe’s largest hub (TTF), reached $659 per thousand cubic metres, although they were worth less than $380 at the beginning of the summer. Since the beginning of the year, gas on Europe’s free market has become 220 per cent more expensive. Contracts for delivery in November rose to $652.8 per thousand cubic metres, while crude prices for delivery in December rose to $657.5.
Gas prices are soaring due to Gazprom’s measures to restrict supplies to the EU market. Over the past two weeks, gas prices in the European Union have risen by a further 18 per cent following the Russian decision in September to cut transit through the Ukrainian corridor by 12 per cent.
On top of this, there is a lower supply of LNG to the European market, caused by high prices of that raw material on the Asian market. Supplies of liquefied gas, which could make up for the deficit, continue to fall: in August they were 16% lower than in July and a third lower than a year earlier.
All this means that time is running out and the filling of underground gas storage facilities in individual countries is progressing slowly. At the beginning of September, storage facilities in Europe were only 67 per cent full, compared with 91 per cent on the same day last year, the finanaz.ru portal reminds. In absolute terms, the difference is more than 25 billion cubic metres. Polish facilities are almost full at this point. As of 5 September, they are 93 percent filled up.
Russian experts of the Skolkovo Energy Centre point out that “there is currently no powerful enough source on the market to fill the facilities.” “The price situation is shocking. It’s crazy,” says Cody Moore, head of gas trading at Mercuria Energy. “We’ve never seen anything like this,” agrees Kassim Magera, head of energy trading at Centrica. In his opinion, a long or particularly cold winter could lead to further price increases and force production cuts in some industrial companies. Now, in most EU countries there is only enough gas for current consumption.
Gazprom justifies the decision to pump less with the need to fill internal Russian storage facilities. The head of the energy ministry, Nikolai Shulgiyev, has set a target for the company to accumulate a record 72.6 billion cubic metres in PMG by 1 November. This will require almost as much gas as Gazprom exports to Europe – about 280 million cubic metres a day – estimates Thomas Marcek-Manser, an ICIS analyst.
Although Gazprom’s strategy is rational from a commercial point of view, it may “carry long-term political risks,” the experts at Skolkovo write. Over the next four years, global LNG production will increase by a third to 449 million tonnes. By 2025, Gazprom’s long-term contracts to export tens of billions of cubic metres of gas to consumers in Turkey and Poland will expire. “Their renegotiation will then depend not only on fundamental market indicators, but also on considerations of Europe’s energy security,” warn the experts at Skolkovo.